If you conduct even an occasional raffle, you may not know that you can only accept cash for purchases of lottery tickets, no debit cards, no checks and no charge cards. Those rules had been on the books since 1995 but only came to light for many charities when Governor Cuomo proposed new legislation to allow charities to accept checks, charges, credit and debit cards.

The new legislation will also make it easier to conduct games of chance at locations other than their own, and would simplify some of the paperwork for charities. It would allow alcoholic beverages to be included as prizes and increase the size of prizes.

The new legislation isn’t law as we write this newsletter but we will watch the progress and you should as well if it affects you.

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Whether you need to register in other states depends on your connection with those states. Unfortunately, the states are inconsistent with their interpretation of whether you have nexus or a connection, and must register.

The most reliable guidance for registration would be the final version of the Charleston Principles (find these easily with Google).

The Charleston Principles are guidelines for and by state charities officials. . They are developed by the National Association of State Charity Officials (the Attorney General’s Charities Bureau in each of the states). The final version of their Internet fund-raising guidelines were recently released. They are only guidelines, so states are not required to comply with them and there are some varying interpretations, but they provide a great basis for understanding your responsibilities.

The guidelines say that, charities that are not domiciled within a state will need to register if they solicit contributions through an interactive website (where donors can process their payment online) and it either targets persons physically located in that state or receives contributions from the state on a repeated an ongoing basis. Additionally even if the website is not interactive, but the charity specifically invites further online activity to complete a contribution or establishes other contacts with potential donors in that state, such as by using email, they will also need to register. For example, if a charity does not specifically solicit in Pennsylvania, receives a contribution to their website and then sends follow-up solicitations by email, they will be treated as soliciting contributions in that state and will need to register unless they meet one of the exceptions to registration. The most common exceptions are based on the dollar amount of contributions received. Thresholds normally vary between $5,000 and $25,000, but again there are exceptions.

The timing of registrations also varies. In most cases registration will be required within a certain amount of time after the year-end in which you raise the stipulated amount of contributions, but in some states, registration is required in advance and in other states, registration is required within a period of time after you reach the dollar limit for registration.

The National Association of Charities Officials website http://www.nasconet.org/ has information for charity registrations. The website also confirms that they are undertaking a project to facilitate multistate registrations.

If you have questions about your responsibilities for filing or registration in other states, please contact us. We can hope you determine what your responsibilities are in each state.

In its ongoing effort to help auditors, our national professional society, the AICPA, annually provides us with an Audit Risk Alert, which is a summary of key legislation and other matters that are currently impacting the nonprofit world. This is so we can understand your environment and adjust our procedures accordingly.

This year one of the areas that was cited was measuring effectiveness. The alert said that donors, regulators and rating agencies, as well as your annual federal reporting form (990, 990EZ) are requiring more performance reporting and nonprofits are looking for new ways to present results. They said that charities are using fact sheets, third-party studies and visual illustrations of how programs are designed, monitored and evaluated.

In this day and age, you need to do performance reporting. How can you do it well and efficiently so you don’t have to take too much time away from performance?

The United Way of America and our local United Way have been focused on outcome measures for many years. One useful resource can be found on Strengthening Nonprofits’ Resource Library. Although guidance on measuring outcomes was developed years ago, it remains as a valuable resource to nonprofits.

Their training uses some United Way descriptions including:

“outcome measurement” – the regular systematic tracking of the extent to which program participants experienced benefits or changes that were intended, and

“outcome” – not “how many worms the bird feeds its young, but how well the fledgling flies”.

long-term outcomes (change in social, economic and political conditions and the environment)

There are personal and financial costs of focusing on outcome measurement, but the National Council of Nonprofits states that “in an environment of increasingly limited resources, those nonprofits that can demonstrate that they are truly making an impact will be the ones most likely to attract resources and talent, and therefore be the most sustainable”.

Uniform Guidance (guidelines for organizations receiving federal awards) states that you must establish and maintain internal controls over federal awards that provide reasonable assurance that you are managing them in compliance with general federal requirements and the specific rules for the funding you receive. Internal controls should be in compliance with the Green Book and/or with COSO.

COSO, which stands for The Committee of Sponsoring Organizations (composed of accounting leadership organizations), or

The Green Book – Standards for Internal Control in the Federal Government

Both of these have been recently updated to take into account how changes in technology have affected all businesses.

You don’t need to master both of these; in fact, they are very similar. They both identify same elements that are necessary for proper internal controls. They are:

The Control Environment – your board and senior management competence and commitment to proper controls,

Risk Assessment – a careful look at your organization’s operations and consideration of what could “go wrong” (what might prevent you from accomplishing your objectives, expose you to risk with funders or regulators, or cause financial loss or be an embarrassment),

Control Activities – policies and procedures that are put in place such as segregation of responsibilities, reviews, and reconciliations,

Information and Communication – clear communication from management to staff about the policies, procedures, and controls that are in place, and

Monitoring Activities – periodic follow-up to reassess potential risks, to make sure that controls are still appropriate based on current operations and that they are still being followed. In big organizations, this can be done with an internal audit function. In smaller organizations it will more likely be done by an audit or finance committee.

Possible Monitoring Activities

Your written policies set standards for performance. Monitoring should include a review of your policies to be sure they are current and appropriate. It should also determine whether staff are familiar with your policies. Is training of new and current staff appropriate? Be sure to review personnel, conflict-of-interest and whistleblower protection policies.

Determine what security measures are in place over confidential information such as employee, donor and credit card information.

Your risk assessment and monitoring should also consider the safety of your staff, clients and others who have a relationship with your organization.

Check whether images of checks are provided with your checking account bank statement and verify whether an independent person reviews checks, electronic payments and transfers to be sure they are proper.

Check how up-to-date bank reconciliations are.

Look at documentation for vouchers/drawdowns to be sure that it is properly detailed and supports the voucher.

Look at some invoices for purchases to determine whether they are properly marked to document approval, nonpayment of sales tax, and to note payment.

Check whether unused checks and undeposited checks and cash received are kept in a locked/secure area.

Review charge card statements to see if there is an independent review and the documentation for all purchases.

Review expense reimbursements, especially for senior personnel to verify that there is proper documentation and an independent review.

The great majority of frauds are uncovered by employees. Interview to be sure that employees know that they are encouraged to communicate any wrongdoing, and that they are familiar with the process for doing so.

Look at how time worked is documented and whether there was an independent review of time worked.

So, as you establish controls over your federal awards, keep these principles in mind and remember that controls are a system, and an ongoing process, not an event.

In our next issue we will provide a list of potential controls and the risks they are designed to minimize.

We have talked a bit about registering and filing with charities bureaus in other states where you carry on activities, but are you clear on the rules for New York State registration and annual filing?

The NYS Charities Bureau website has a good overview of registration and filing requirements, but here is a concise overview.

First, the New York State Charities Bureau administers two laws that affect charities registration and filing. They are, Article 7A of the Executive Law (Article 7A), and the Estates, Powers and Trust Law (EPTL).Registration requirements for Article 7A apply to all charities that solicit contributions from New York State residents, foundations, corporations, government agencies and other entities with certain exceptions. The exceptions can be found in Charities Bureau Schedule E.

Key exceptions include:
• contributions are less than and will continue to be less than $25,000 per year and the organization does not use the services of a fund raising professional or counsel.

GuideStar’s website states that one of the questions they get most frequently is “How can I get my organization added to your database?” They go on to explain different circumstances.

For example, GuideStar won’t list organizations that don’t yet have IRS approval for their exempt status even if approval has been applied for. GuideStar will list organizations once IRS publishes them in the Business Master File, but that process takes months, so it is okay for you to send IRS approval information directly to GuideStar.

Some organizations such as churches, or organizations that file a combined return, won’t get listed by IRS, so you will have to contact GuideStar and provide necessary information. For example, religious organizations that have not applied for recognition of exempt status to IRS and which have their own employer identification number must provide information about the year they were established and other information confirming their status (GuideStar lists 3 different sets of documents that are acceptable). Organizations that are part of a group ruling must provide a copy of IRS confirmation of their employer identification number and documentation that the organization is an official chapter or affiliate of the national organization.

Guide Star even provides procedures for small nonprofits with a charitable fiscal sponsor to become registered.

You can contact GuideStar by email at outreach@guidestar.org, by fax at 757-229-8912 by mail to GuideStar, 4801 Courthouse St., Suite 220 Williamsburg, VA 23188 or visit their website at GUIDESTAR WEBSITE.

With all of the pressure on funding and fundraising, gaming will be an option for some charities. Whether it involves an annual raffle as part of your major event, or bingo that happens throughout the year, if you are going to consider gaming you need to know the rules.

There are federal and state rules about charitable gaming. Federal rules are primarily about what kinds of activities constitute unrelated business income and what reporting is required.

New York State Gaming Commission regulates gaming activity in the state. If you carry on gaming, you are required to register with New York State Wagering and Gaming and in your local county.

New York State has guidance and regulations for raffles, Bingo, Bell Jar tickets a.k.a. Pull Tab Tickets and Las Vegas Nights or casino games.

Some of the key rules that you need to be aware of are:

You need to first apply for registration and an identification number with New York State. You can find this form if you Google “New York State 1A Application for Registration and Identification Number”.

You may also need a games-of-chance license and supplemental forms

For bingo, you need a special bingo license, and there are several reports to fill out, including cash control reports and quarterly statements of bingo operations.

Reporting is simpler for charities that have less than $30,000 in raffle profits for a calendar year. Much more extensive reporting is required if you are over that limit.

IRS focuses on whether activities are subject to Unrelated Business

Income (UBIT) reporting and taxation. Raffles are generally exempt from UBIT, and bingo is exempt from UBIT in New York State (because for-profits cannot carry on bingo in New York State). However, there is a strict definition of bingo that requires that winners be determined and prizes be distributed in the presence of all persons with wagers in that game.

Several games such as pull tabs and scratch offs, as well as instant bingo and internet bingo, don’t meet IRS’ definition of bingo. These games are not automatically exempt from unrelated business income taxation, although they may be exempt if substantially all activities related to these games are carried on by volunteers. Substantially all means at least 85%, and volunteers are defined to include individuals who don’t get regular compensation, tips, goods or services or other benefits that are proportional to the services they provide. Even contributions to another exempt organization in exchange for volunteer labor provided by that organization will violate the volunteer exception.

IRS also has regulations about reporting winnings. Specifically, when a winner receives at least $600 and that amount is at least 300 times the wager, this must be reported on form W-2G. For example, someone who wagered $5, and wins $750 would not be subject to this reporting requirement because $750 is not 300 times the wager. However, bingo winnings are only reported once they total $1,200.

Withholding is generally required when winnings are more than $5,000 or more than 300 times the amount wagered. This doesn’t apply to bingo but does apply to raffles and poker tournaments.

More information can be found in IRS’ recent publication 3079. This publication also points to other resources for gaming. Including the NYS Gaming Commission website on charitable gaming found HERE

Final note – IRS and the state share information about charitable gaming. IRS wants to make sure that it is being properly reported and New York State wants to be sure that registrations and reporting are complete.

Charitable gaming can be a useful source of additional unrestricted revenue, as long as you understand and follow the rules.

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Standards for Internal Control in the Federal Government has been issued by the Comptroller General. What color is it? Green! Why should you care? Because the new rules for Uniform Grant Guidance say that you must have internal controls over administration of federal awards and they should be compliant with COSO or this publication.

The Green Book is manageable in length, under 70 pages of content with some clear illustrations, a concise list of the components and principles of internal control, and an appendix that lists the principles that should be followed.

More importantly, it is not dramatically different from the COSO standards that you are probably already familiar with. The 5 components of internal control (control environment, risk assessment, control activities, information and communication, and monitoring) are the same as COSO.

Internal controls are critically important in nonprofits, and documentation of your controls is a must for organizations receiving federal and other funding, so familiarity with this new guidance is valuable.

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Volunteers who provide services to charities and have unreimbursed out-of-pocket expenses are generally able to include them as personal itemized deductions.

Individuals must have records to support the amount of their expenses and, if any of the expense categories exceeds $250, the individual must get an acknowledgment from the charity that describes the services provided, states whether and the extent to which expenses have been reimbursed, and a include statement that no benefits were received in return. This acknowledgment must be received before the due date of the volunteer’s tax return for that year.

As an example, if an individual purchases a plane ticket costing over $250, to provide services under the supervision of a charitable organization, they will need a receipt for the ticket to prove the expense and a statement from the charity about the services that were performed and information about any reimbursement or goods or services received in return.

IRS and the Tax Courts have been disallowing contributions when acknowledgments are not received or not timely so this is important.

As CPAs who are very focused on good controls, we advocate for complete reports directly from your accounting system to your board and finance committee, but we also understand the value of financial highlights that can be found in a dashboard report.

Some people have the personality for a dashboard report “give me the big picture and let’s move on”. Some people just don’t like the detail and avoid it at all costs, and still others find dashboard information to be a very useful supplement and interpreter of more detailed information.

What should be in your dashboard? There are books on the topic, for example boardsource.org has a publication available in print and PDF versions called “The Nonprofit Dashboard: Using Metrics to Drive Mission Success”. They also have four member resource PDFs on dashboards.

Dashboards can address financial information, program activities and program service accomplishments.

What financial information is important to your organization? If cash is tight, cash account balances will be key. It will be useful to compare them to the prior month and, if your activity is seasonal, compare them to the same month one year ago.

Total income, total expenses, and year to date surplus or shortfall can be an important alert.

What about client statistics? The total number of clients you are currently serving and the first-time clients served this month.

If volunteers are a key part of your service delivery, what about the number of volunteers or volunteer hours?

Other significant events that occurred since the last report can be listed. Examples might include renewal of a large grant or approval of a new grant or program, or funding source that was discontinued.

One of the objectives of dashboard reports is to provide information so you can make adjustments before a problem arises. Like your car’s dashboard tells you gas is low, or you better slow down, your business dashboard should warn you about deficits, cash flow challenges, funding changes, or additional demands for service and support.

It’s healthy and can be fun to brainstorm about what key information will keep the organization and its board informed about the organization’s direction and progress.